FairPoint Communications 2004 Annual Report Download - page 28

remaining $19.9 aggregate principal amount of the 121/2% notes (which we intend to effect on May 1, 2005) and gives effect to three
interest rate swap agreements we entered into upon the closing of the offering that effectively fixed the interest rate we will pay on
approximately $130.0 million of the term loans under our credit facility at 6.11% until December 31, 2009, fixed the interest rate on
approximately $130.0 million of the term loans under our credit facility at 5.98% until December 31, 2008 and fixed the interest rate
on approximately $130.0 million of the term loans under our credit facility at 5.76% until December 31, 2007. Pursuant to these
interest rate swap agreements, the interest rate on 66% of our floating rate term loan borrowings will be a blended interest rate of not
more than 5.95% per annum until December 31, 2007.
(4) Capital expenditures in fiscal 2004 were approximately $36.5 million, which includes $4.4 million of non-recurring capital
expenditures relating to the conversion of our six billing systems into an integrated billing platform and the centralization of our
customer service records and $9.0 million of non-recurring capital expenditures relating to the final stages of our digital subscriber line
initiative. We expect that our annual capital expenditures for our existing operations will be approximately $31.0 million for fiscal 2005
through fiscal 2009. We estimate that approximately $28.0 million of this amount will be used to maintain and enhance our network
infrastructure and operate our business. This includes expenditures to meet our network, product offering and customer
requirements, such as investments in equipment, central office technology (which includes both hardware and software), inside and
outside plant upgrades to meet network capacity requirements and normal repair and maintenance to our infrastructure. In addition,
approximately $3.0 million of this amount will be available for one-time or discretionary capital expenditures, such as the billing
systems conversion. We expect to fund all of these capital expenditures through our cash flow from operations. If cash is available
beyond what is required to support our dividend policy, we may consider additional capital expenditures if we believe they are
beneficial. Although the amount of our capital expenditures can fluctuate from quarter to quarter, on an annual basis we do not expect
capital expenditures for our existing operations through fiscal 2009 to vary significantly from our estimated amounts. We do not
believe that our dividend policy will materially affect our ability to maintain and enhance our network infrastructure and operate our
business.
(5) We expect cash taxes during the four fiscal quarters ending March 31, 2006 to be approximately $0.7 million. Based on certain
assumptions, our net operating loss carry forwards as of December 31, 2004 were approximately $251.9 million. We have estimated
cash taxes after giving effect to the transactions based on an estimate of our net operating loss carry forwards (including an
"ownership change" under Section 382 of the Internal Revenue Code limiting the usage of our net operating loss carry forwards) and
interest and amortization of deferred financing fees based on our new capital structure. At such time as our net operating loss carry
forwards have been fully used, our cash tax liability will increase and may impact our ability to pay dividends. Our tax liability may
also be affected by limitations on the use of our net operating loss carry forwards under Section 382 of the Internal Revenue Code by
reason of the offering and earlier ownership changes. See "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations—Risk Factors—Limitations on usage of our net operating loss carry forwards, and other factors requiring
us to pay cash taxes in future periods, may affect our ability to pay dividends to you" and "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations—Critical Accounting Policies—Accounting for Income Taxes."
(6) The table below sets forth the number of shares of our common stock which were outstanding as of February 28, 2005 (excluding
115,733 shares of our common stock issuable upon the exercise of fully vested, exercisable and in-the-money stock options and
473,716 shares of restricted stock awarded under our 2005 stock incentive plan, which shares will begin to vest on April 1, 2006 and
will not be entitled to receive dividends for any period prior to April 1, 2006) and the estimated
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